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Residency is the critical, finishing segment in a medical student’s education. But what if she or he graduates and there is no residency opening available?

The U.S. medical school system hasn’t yet outpaced the supply of hospital residency slots it needs to accommodate all graduates, but Dr. Peter Coggan warns that may be the case by as early as 2015.

Coggan is president and CEO of Grand Rapids Medical Education Partners, associate dean of graduate medical education at the MSU College of Human Medicine, and also professor of family medicine at MSU. GRMEP is a partnership between Saint Mary’s Health Care, Spectrum Health, Grand Valley State University and Michigan State University College of Human Medicine. Among other things, the organization works closely with graduates of the new MSU College of Human Medicine, sponsoring training programs for almost 300 residents in 17 specialties and subspecialties.

By 2015 or 2016, according to Coggan, “we’ll be looking at a 48 percent increase in the number of medical students graduating from Michigan medical schools. We are likely to end up with some worthy medical students who are not able to get a residency, and therefore can’t practice medicine, because you can’t leave medical school and go into practice anymore” without completing a residency.

“In most states, you need a minimum of two years post-graduate training to get a full license,” he added.

It’s not only Michigan that is starting new med schools and expanding existing ones: It’s a national trend. But Michigan is certainly experiencing a noteworthy boom in its production of med school graduates. Coggan shares stats showing that first-year med students in Michigan totaled 770 in 2009; by 2014, that number will reach 1,120, a 45 percent increase.

“We’ve got Western,” he said, referring to Western Michigan University’s plans to open a med school in 2014. Then there is Central Michigan University and Oakland University, both of which also are opening med schools. Meanwhile, Michigan State University’s allopathic medical school in East Lansing has doubled its class size to 100, and the MSU osteopathic school is expanding its class size from 200 per year to 300, mainly by developing campuses in southeast Michigan.

In 2013, the CMU College of Medicine will begin the necessary training for primary care physicians dedicated to serving the needs of communities in mid- and northern Michigan. Oakland University has partnered with Beaumont Hospital to open a joint med school and has been raising funds since 2008.

“My concern about this is, we are beginning to talk about going to med school to students in high school, so they begin the planning awfully early and they commit to college courses to prepare themselves for medical school — and that’s a tremendous investment,” said Coggan.

The average new graduate from U.S. medical schools today is in debt about $170,000 for that education, according to Coggan.

The Wayne County Medical Society Foundation invited Coggan to speak in April in Detroit, where he delivered the presentation he has already made to several groups and organizations: “Too Many Medical Schools, or Too Few Residency Positions?”

“I’ve argued in national meetings for looking at the production of physicians” systematically, said Coggan. The process should take into account the numbers of future doctors that will be needed in the various specialties, along with the specialty mix within the residency programs, “so that we are producing numbers that are approximately equal.”

“But that’s very un-American, you know. We sort of believe in the free enterprise system here,” he said. “I think young people are going to get hurt in this whole process and we are going to be wasting bright young minds, and I think we ought to be more thoughtful about the way that we do this.”

Coggan’s presentation emphasizes the importance of residency training in Michigan to the state’s supply of doctors. Fifty-four percent of all Michigan physicians completed their residencies and/or fellowships in Michigan and stayed in Michigan to practice.

The Association of American Medical Colleges released data in 2008 from a survey of residents, which showed more than half of them planned to initially practice medicine within 10 miles of their training location. Fewer than 20 percent said they intended to move more than 150 miles from their training location.

Coggan’s presentation highlights an impending shortage of physicians in the U.S., with the shortage by 2025 projected between 124,000 and 159,000. Primary care physicians, in particular, will be in short supply.

According to the AAMC website, “unless we act now, America will face a shortage of more than 90,000 doctors in 10 years.” This is due largely to the rapid, ongoing expansion in the segment of Americans over the age of 65 — “the very segment of the population with the greatest health care needs,” notes the AAMC.

The Health Resources and Services Administration, the primary federal agency for improving access to health care for people who are uninsured or medically vulnerable, predicts a deficit of more than 65,000 primary care physicians by 2020, according to Coggan.

Dr. Hal B. Jenson, the dean of the new Western Michigan University School of Medicine now being planned in Kalamazoo, said Coggan “is absolutely right.”

“There are two different problems,” said Jenson: not enough future doctors in the pipeline and not enough slots in residency training programs. “Increasing the number of slots in medical schools and increasing the number of medical schools in the U.S. will help with one problem,” he said. “But we are still left with the other problem: the number of training positions (residencies) open to GME.” (Residency programs are known formally as graduate medical education or GME.)

“It’s one continuous pipeline,” he said, beginning with medical school and ending with GME.

“So if you solve the first half of the pipeline problem, you still have a bottleneck in GME. And that’s a separate problem we have to move to address as a country,” said Jenson.

According to a report published last year by the AARP Public Policy Institute, “Medicare is the main funding source for GME in the United States.” Other sources are Medicaid, the Department of Veterans Affairs, the HRSA and private payers.

In 2008, according to AARP, Medicare paid teaching hospitals about $9 billion for support of GME, or about $100,000 for each of the roughly 90,000 residents supported by the Medicare program. About one third of that went toward the direct cost of operating a residency program, including salaries for teaching faculty and residents, admin costs, and rent and overhead cost for rooms used for teaching. Two-thirds of the $9 billion was “indirect” payments for GME to reimburse hospitals for the additional cost of caring for patients while simultaneously training residents.

A teaching hospital, said the AARP report, can train as many residents as it wants to, but the number of residents Medicare will support is capped, and has been since 1997. The cap was in response to two concerns: that hospitals had a strong incentive to add residents to get more federal money, and that the country would soon have an oversupply of physicians.

The federal government’s method of funding GME has been flat, “even though the needs continue to grow and we have a shortage” of slots in GME, according to Jenson.

“About five years ago, there was a relatively small increase to some (federal) programs,” and this past year there was additional funding for a few more positions in primary care specialties, but that increase is “limited to five years. After that, there’s no additional funding,” said Jenson.

“As a country, we don’t have a good, long-term solution to having the number of training positions that we need,” he added.

Coggan notes that Spectrum Health Hospitals and Saint Mary’s Health Care, both of which have GME programs, receive federal funding (Medicare, Medicaid) for about 280 residents. “They fund an additional 20 positions from their own resources,” he said.

At an average overall GME cost of $100,000 per resident, “you can see this is a substantial commitment” on the part of the two hospitals, added Coggan.

It should be noted that the residents’ salaries are nowhere near $100,000. According to Coggan, they are paid between $46,500 and $55,200, plus benefits. The pay depends on the individual’s level of training, with the upper range being seventh year residents and fellows.

An increase in federal funding for GME could create enough openings to accommodate the residencies that will be needed, but Coggan said it would depend on the conditions attached to the new slots — such as being focused on primary care only.

One factor that limits the number of residents is the number of physicians willing to take “a major teaching role with only modest reimbursement, if any, for their teaching time,” said Coggan.

Pete Daly is a Grand Rapids Business Journal staff reporter who covers small business, banking and finance, food service and agriculture and government. Email Pete at pdaly at grbj dot com. Follow him on Twitter @PeteDalyGR

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